November 6, 2012
The Business Cycle
Recession
This when the economy slows down. 2 consistent quarters of negative GDP. Leading to decline in purchasing, increase in unemployment also closing in business. Few taxes are collected during the recession, gov’t. has less capital to provide social service (schools). Decrease in exports and construction.
Trough
The bottom of the cycle. Production and employment at their lowest. Completes recession and heads to prosperity.
Expansion
Economy begins to grow. Employment, wages, production and profit all expand. Investments are strong.
Peak
Top of the business cycle. Economy stops expanding and becomes contracting.
Economic indicators of the business cycle
Economic shows how well economy is doing. There are 3 indicators:
Leading: predicts where the economy is heading. Adjust before the economy actually experiences the change. The indicators are very important because it helps guide investors, businesses and governments to act and prepare for the change in the economy. Like when to start building houses because people wont buy houses if they think the economy will drop. Lagging: adjusts after the change has happened. It can take 2 or 3 quarters to influence the lagging indicator. Example is the unemployment rate (once the economy picks up it may take up to 6 months for the unemployment to drop.
Coincident: changes with the business cycle. For example international trade.
Government and the Business Cycle
The business cycle can individual country’s economy. Example the recession of 2008-2009 really affected the United States and caused many of the American citizens and business their house and business go bankrupt. Canada suffered because the States were not buying exports from Canada. The 2009 budget show the gov’ts influence on the business cycle. Things like $12 billion on improvements (roads, internet access, health records), $7.8 billions to build quality houses and $200 billions for consumers and businesses to provide financing for investing and creating new jobs.
The united states set aside $190 billion of their $787 billion of its stimulus package to gov’t agencies which used to improve buildings, alternate energy programs, education, health care, technology improvements, and to small business.
Economics of Trade Many advantages come from trading internationally since it increases job, markets, technology, competition and variety of products.
Absolute Advantage
When a